Skill Requirements across Firms and Labor Markets: Evidence from Job Postings for Professionals.
Deming, D-J. and Kahn, L-B. (2017). Journal of Labor Economics. Forthcoming
Topics: Education, Skills, Labour Market
In this paper, the authors study the variation in skill demands across firms and labour markets. Key takeaways:
- There is substantial “heterogeneity in skill requirements” within occupations.
- Higher paying and more productive firms have greater demand for cognitive (problem solving, research, analytical and critical thinking) and social skills (communication, teamwork, collaboration, and negotiation).
The present paper studies “variation in skill demands for professionals across firms and labour markets”. They hypothesize that wage inequality among firms can be attributed to a heterogeneity in demand for job skills and that this variation is “positively correlated with measures of firm performance”.
They use a database from Burning Glass Technologies on employment vacancies posted from 2010 to 2015 by 86.0000 firms, and includes information about skill requirements (problem solving, negotiation, etc.). They categorize the keywords into ten recognizable job skills that include cognitive, social, management, and finance. To investigate the demand for cognitive and social skills and the productivity of workers, they use measures of wages and performance (firm revenue per worker) from the Bureau of Labor Statistics and Standard & Poors.
To test the variation in skill requirements, they regress the probability that an ad posts a given skill on the occupation, firm fixed effects as well as education and experience requirements. To examine the link between skill demands and outcomes they regress the “outcome on a vector of average skill requirements of ads posted”.
They first demonstrate that there is strong variation skill requirements, “even within occupation, industry, and location”. They also find that cognitive and social skills are positively correlated with pay and firm performance, and that cognitive and social skills are complements. The results show that cognitive and social skill requirements account for “5% of residual variation in wages and between 2 and 9% of variation in firm productivity”. As a whole, the job skills are important explanations of wage patterns and firm performance.
The results show “the usefulness of advertised skill requirements in explaining heterogeneity in wages across firms and labour markets, even within narrowly defined occupations”. Firm characteristics and production technology could be included in future research to have a better understanding of the relationship between skill demands and production technology.